By: Michael Cirangle
It has been a little over eight months since President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law and states have been analyzing the future impact on their coffers and constituents ever since. Thus far, it is estimated that many states will be seeing a significant increase in tax revenues due to the TCJA. Why then is the State of Maryland suing the U.S. government over tax reform?
Maryland has joined the states of New York, Connecticut, and New Jersey in a suit against the U.S. government in order to invalidate the TCJA provisions that limits federal individual income tax deductions for state and local taxes to $10,000 per year. All of the states that joined the suit have relatively high state income tax rates and its residents are posed to be disproportionately impacted by this new law because of the inability to deduct such taxes on their returns.
According to “The 60-Day Report” prepared by the Maryland Bureau of Revenue Estimates, Maryland could see an increase in tax revenues as high as $659 million as a result of the TCJA. These additional revenues will be celebrated by those within state government that wish to have additional resources for special programs, but those that are providing the source of the revenue, taxpayers, will not be very excited when they see their tax bill come April 15, 2019.
The states have argued in their suit that the limitation of the state and local tax deduction will cause irreparable direct harm to the states and its residents. These harms include the potential for depressed home values and reduced state revenue due to residents moving to other states. Additionally, they argue that the federal government’s reach to limit these deductions is interfering with the State’s powers and is unconstitutional.
It has yet to be seen if this suit has any actual teeth behind it or if it is just a political play by the states to show that they are fighting on behalf of their residents. However, it is certain that there will be no final decision made on this case anytime soon and it is likely to be litigated into the coming years. During that time your Ellin & Tucker team will be monitoring the case and continuing to provide you with the most up-to-date information and planning techniques to ensure there are no surprises come tax time!
MICHAEL G. CIRANGLE, CPA is a principal in the tax department of Ellin & Tucker and brings a wealth of national and international tax planning and compliance expertise spanning more than a decade. His extensive experience and inside knowledge of privately owned companies enables him to provide the highest level of practical and technical tax compliance and consultation. He can be reached at firstname.lastname@example.org.